Mesirow's Cripps leads billion-dollar shopping spree

(Crain's) — After raising $379 million for their first real estate investment fund, Alasdair Cripps and his team at Mesirow Financial are chasing apartment acquisitions across the country as they seek to capitalize on the strong rental market.

Mr. Cripps, senior managing director and head of Mesirow Financial Institutional Real Estate’s direct investments unit, is leading the group's push to buy $1 billion in real estate in as many as 17 metropolitan markets across the U.S., including Chicago, Seattle and Washington, D.C.

The fund closed Tuesday, well above its initial $250-million projection, but Mesirow has already spent about $500 million, including equity from the fund and debt, on 12 multifamily properties, with another two under contract, said Mr. Cripps.

Of the 14 properties, four are ground-up developments on the West Coast being built by joint ventures with outside partners. The rest, including the 236-unit Apartments at Windbrooke Crossing in Buffalo Grove, are existing buildings ranging in size from 200 to 450 units that Mesirow is renovating — so-called value-add investments.

“Our strategy is really kind of on the value side,” said Mr. Cripps, who joined Mesirow in 2007, the same year the firm's direct investments unit was created. “How can we take an existing asset, put select capital expenditures in it and really improve it into a better-performing asset?”

Mesirow has joined the herd of investors pursuing apartments, arguably the most popular real estate sector these days amid a housing crisis and economy that have kept many would-be buyers in the rental market.

“We think that the younger generation today is making a shift, a psychological shift, that homeownership is not that important to them,” Mr. Cripps said. “With people being unsure about their jobs, they don't necessarily want to make a plunge into buying a home.”

The uncertain economy has curbed Mr. Cripps' enthusiasm for most other property types, though he says he's interested in industrial real estate. He plans to steer clear of the retail sector, saying it's overbuilt.

A native of Madison, Wis., Mr. Cripps, 46, earned his bachelor's degree in business administration from the University of Wisconsin-Madison in 1988. Prior to joining Mesirow in 2007, he spent nearly 15 years with Capri Capital Partners LLC and its predecessor companies, most recently serving as partner.

In a recent conversation with Crain's, Mr. Cripps discussed the Mesirow fund, its strategy and his outlook for investment opportunities going forward. Here are edited excerpts from that interview:

Crain's: Can you describe your investment strategy? What property types are you looking for?

Mr. Cripps: Our strategy is a value-added strategy. Given the current environment, particularly when we started investing, which was at the end of 2010 . . . we felt the best strategy was in the multifamily space and to date we've been concentrating on the multifamily space or apartments. . . .Our strategy is really twofold. One is to buy existing assets, grow cash flow through putting in additional cap-ex where we're looking for a 20 to 30 percent return on those additional dollars. . . .We're also selectively doing ground-up developments in certain high-growth cities.

What cities are you targeting?

We're targeting certain cities that we like for a variety of different reasons, whether it's population growth, cost-to-own vs. cost-to-rent, lack of supply, how easy is it to add new supply — in other words, how often can you build in a Boston, for example vs., say, a St. Louis?

What other asset types are you interested in?

We are not interested in retail or office at the moment, and I think that we like the industrial segment. However, I think given some of the recent uncertainty — the fiscal cliff, the slowdown in China and the lack of job growth — we have not made those investments and we may not. It may be that we stick to multifamily or apartments for the entire strategy. We want to do what's in the best interest of our investors.

What are your plans in Chicago?

We have one property in Chicago. . . .When we're building out a portfolio, there's a number of things that we look at: One is vintage year and what I mean by that is the age of the building — when it was originally built — so we have '80s, '90s, and 2000 product, and we're under construction on a couple of (West Coast) projects that are going to be delivered here within the next several months. So we like to get vintage year diversification. We have urban and suburban locales. We love the play on transit, so particularly near train stations in some of our urban and suburban locations. So, to answer your question originally about Chicago, it's not necessarily about Chicago; it's really about the portfolio as a whole. . . .When we look at Chicago per say, we're concerned about the number of units being delivered in the city, for example; there's a lot under construction. We prefer an infill suburban opportunity when you start looking at the (cash) yields that one can obtain.

Do you consider yourselves to be long-term investors?

Generally yes, we consider ourselves to be long-term investors in the asset type of apartments. We think it's a tremendous hedge against inflation, and should interest rates move up, it's probably in large part because the economy's doing much better, which will translate into rental growth, particularly as more jobs are added to the market.

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